Self-Employed - State Pension - HMRC (now confusion)

56puddles

After a couple telephone calls with different HMRC departments, am now totally confused.

It is understood that 10 years pension contributions are required by HMRC to receive a state pension.

Here's the situation. I have married a UK national and for the past 3 years, I have been working part-time, self-employed. As my yearly salary after deductions was below the threshold, I made £0 contributions. However, now I understand I need to make contributions to gain 10 years (or more) if I chose to continue working until I reach the retirement age. This would be February 2029.

After speaking with the Future Pension help centre, I ended up very confused and wondered if someone here might be able to help with understanding what is the best option.

I currently have 3 years (NIC-2) to pay, which would be for 2023/24. The person at the Future Pension help centre spoke in terms of two blocks of 5 year periods.  So, my understanding would be: buy two years of arrears - this would cover 2021/22 and 2022/23, plus my 3 years of self-employment to-date would equal 5 years.  The next 5 years would be continued self-employment until retirement age at 67.

Does the summary above sound correct?

The person at the Future Pension help centre also suggested that I could buy other years in arrears, which would start from 2012/13 up to 2021/22. I don't know why they suggested 2012/13 year as I hadn't moved to the UK. I moved to the UK during the 2013/14 financial year. But, using the 2012/13 year period, this would mean I would be buying 9 years of arrears pension.

And of course, buying 9 years of arrears pension contributions is not a small amount to pay.  I am not certain the money paid would be returned for the investment made, but I am not sure - more confusion.

One last thought after speaking with the people at HMRC, they each speak as if there is only one opportunity to buy/pay for this upcoming financial year - is that correct?  What ever is decided to pay, only a single payment can be made during a financial year?

Thank you for any who can help understand the best option.

molerat

It is understood that 10 years pension contributions are required by HMRC to receive a state pension.

Yes, but if you have an overseas work history that could be used to reach the 10 years qualification so 5 UK and 5 overseas would entitle you to 5/35 of a full UK pension.  Have you an overseas work history and where from ?

And of course, buying 9 years of arrears pension contributions is not a small amount to pay.  I am not certain the money paid would be returned for the investment made, but I am not sure - more confusion.

Each year purchased will give you £6.32 per week (increasing with inflation each year) for life so one class 3 year at around £825 would recover the cost in 130 weeks - something like a 30-40% annuity, a class 2 year at £170 would recover the cost in 27 weeks - like a 190% annuity !!. Providing you live long enough to collect of course, it cannot be inherited / passed on.

One last thought after speaking with the people at HMRC, they each speak as if there is only one opportunity to buy/pay for this upcoming financial year - is that correct?  What ever is decided to pay, only a single payment can be made during a financial year?

Past years can be bought up to 6 years after the end of the year concerned.  There is a special dispensation for the years 2006-07 to 2017-18 connected to the introduction of the 2016 pension and the purchasing clock being put on hold in 2023 and those years will cease to be available from 6 April 2025 along with 2018-19.  Past years can only be bought with a one off payment but you can buy as many as you want in one go.  Going forward years can be paid in instalments.

The one big thing that comes out of this is that if you want to purchase years 2018-19 and earlier you need to get a move on. The doors close on 5th April next year, 6 months away, and there will be an awful lot of people running towards them soon

It looks like you may only be able to achieve 15 years so that would give you £94.80.  Depending on your and your wife's other income and savings you could be eligible for pension credit (if it still exists then) which would top up your pension amount plus give access to other benefits.  Every year you purchase reduces the amount they will top up so you would be paying effectively for nothing.  It is something that needs looking at in the whole bigger picture, topping up is not always straight forward if you would be on a low income.  Of course if you will be above the pension credit levels then filling anything available is value for money.

pinnks

Firstly, depending on where you originate from, e.g. within the EU, there may be a bilateral social security agreement with the UK that means that social security pension contribution periods in your country of origin and/or countries in which you have contributed, may help you get past the UK's 10-year requirement.  If that is the case, then you will simply get a UK pension based on however-many full NI years you end up with at UK state pension age.

But leaving that to one side, the basic position is that is you are working then you either have to pay NI or you may be credited with having paid it and thus "fill" each NI year as you progress through life.  In some circumstances you may get NI credits if you are not working.  Each NI years gives you, in simple terms, an extra £6.32 per week of pension based on the rates in force for 2024/25.  Clearly the amounts increase each year by the same percentage as the pension itself.

If you have gaps in your NI record, i.e. missing years (NI years are the same as the tax year), you can pay NI voluntarily for those years to "fill" them.  Currently you can pay any year from 2006/07 onwards, or, if later, the tax year in which you arrived in the UK and received your NI number, though you would need to speak to the Future Pension Centre to ensure that filling those gaps will improve your pension, especially for years before 2016/17.  You would also want to consider whether you will pay enough mandatory NI in the future to achieve a full pension before spending your hard-earned cash voluntarily.   

Marcon

There's a huge amount of info here: https://forums.moneysavingexpert.com/categories/state-pension-topping-up

Not all of it will be relevant to you, but the titles of the individual threads should give you some clues as to which might be useful reading.

Baldytyke88

56puddles said:

After a couple telephone calls with different HMRC departments, am now totally confused.

It is understood that 10 years pension contributions are required by HMRC to receive a state pension.

Once you have paid for some missed years, you might find it usefull to check your pension forecast.

https://www.gov.uk/check-state-pension

56puddles

Thank you for each of the replies and answers, they have been of value as well as insightful.

In respect of previous employment, this has been outside the EU and have been advised there are arrangements for pension transfer/payment in the UK.

The potential issue that was not foreseen previously is that if no state pension is accrued in the remaining years (min. 10 year requirement, etc.), it may still be possible to qualify for pension credit.

The conundrum therefore, is to pay for a future state pension while opting for pension credit in later years.  Perhaps this summary is too simplistic, or possibly totally inaccurate?  But, it is a thought that has unexpectedly become a conundrum.  To try and solve the issue, a telephone conversation with the Pension Helpline didn't help at all. In fact, it was suggested a conversation with the Pension Credit Inquiries might be more useful.

But, before making another telephone call, it seemed worthwhile posting the varying thoughts here first... and now resorting to #idk